There is no denying that art has long been seen as a store of value, especially when it comes to rare works of art. Today, many people view art as an alternative investment asset class because of its potential to hold or increase in value over time. And it has not disappointed.
For instance, German visual artist Gerhard Richter, who is considered one of the most popular contemporary living artists, painted "A.B. Still". This piece of art was auctioned at Sotheby's in New York in 2016 for more than $30 million.
The painting was sold from the estate of Steven Ames, a former partner of the investment bank Oppenheimer & Co. Ames had acquired the painting in 1991 for $264,000 ($467,000 in 2016 inflation-adjusted dollars).
A B, STILL by Gerhard Richter
That's an increase of 6323.98% in 25 years. And that's just one example. On a macroeconomic level, the arts have performed exceptionally well. From 1995 to 2020, the S&P 500 returned an average of 9.9% per year. Contemporary art achieved an average return of 14.3% per year over the same period.
But how did art become such a lucrative investment. In this post, we present the 7 defining moments in the history of art that made it the valuable asset class it is today.
1. The Medici Family and The Renaissance
The Medici, the Italian banking family and political dynasty that ruled Florence from 1434 to 1736, are probably the best example of how wealth in one area can be harnessed for another,
The Medici understood the power of art not only as a means of cultural expression but also as a strategic investment. Their patronage enabled them to build relationships with talented artists and commission works that not only embellished their own homes but also enhanced their prestige and influence in society.
By investing in art, the Medici were able to diversify their wealth beyond the banking sector, which was their main source of income. This allowed them to spread their risk and protect themselves from economic downturns or other unforeseen events that could affect their financial situation.
In addition, the Medici solidified their family name and heritage through their investments in the arts. Through their patronage of artists such as Michelangelo and Botticelli they were able to amass a collection of priceless works of art that would be admired for centuries to come. This legacy continued to contribute to the family's wealth and prestige even after the collapse of their banking empire.
It is undisputed that the Medici family played a crucial role in the Renaissance movement in 15th century Italy. Beyond the arts, they also used their wealth and power to promote education. They founded the Platonic Academy in Florence, a center of learning and philosophy that attracted some of the brightest minds of the day. They also founded a library and supported the publication of books, which helped spread knowledge and ideas throughout Europe.
2. The Rise of Art Auctions in the 18th Century
The 18th century saw the rise of art auctions as a means of buying and selling art. Prior to this time, art was primarily commissioned by wealthy patrons or purchased directly from artists or art dealers.
However, with the growth of a wealthy merchant class and the increasing availability of art from other parts of the world through trade and colonization, the demand for art as a tradable commodity increased.
The first recorded art auction took place in Amsterdam in 1674, but it was not until the 18th century that auctions became more common. The oldest auction house, Stockholm Auction House (Stockholms Auktionsverk) was established in Sweden in 1674.
This was followed by Sotheby's in 1744 and Christie's in 1766 (both in London, UK. These auction houses provided a platform for buying and selling art on a larger scale and created a market for art as a commodity.
Auctions offered collectors not only the opportunity to buy art, but also to sell it. As the market for art grew, prices for certain artists and styles began to rise. This led to a new type of investor who viewed art as a potential investment rather than just a decorative object. Collectors could buy art in the hope that it would increase in value over time, much like investing in stocks or real estate.
Auctions also provided more transparency in the art market, as prices were publicly recorded and became more standardized. This contributed to a sense of stability in the market, as buyers and sellers were better able to assess the value of art.
Overall, the advent of art auctions in the 18th century helped establish art as a tradable commodity and paved the way for it to become a more common form of investment.
3. The Formation of Public Art Museums in the 19th Century
In the 19th century, interest in art as an expression of national identity grew, and many countries began to establish public art museums to promote and showcase their cultural heritage. The Louvre Museum in Paris, for example, was opened to the public in 1793, and museums such as the National Gallery in London (1824) and the Metropolitan Museum of Art in New York City (1870) were founded in the following decades.
These public art museums played a crucial role in raising the perceived value of art as an important cultural asset. By exhibiting masterpieces from different periods and regions, they helped establish the canon of Western art history and created a shared cultural identity around art. They also made art accessible to a wider public, including the middle classes, who could now visit museums and see works that had previously been available only to the rich and powerful.
In addition, public art museums helped legitimize the value of art as an object of study and contemplation. The creation of curatorial departments, such as conservation and research, demonstrated the importance of scholarship and expertise in the field of art history. This, in turn, contributed to the perception of art as a serious academic discipline and an important cultural legacy.
4. The Emergence of Private Collectors in the 20th Century
In the 20th century, private collectors began to play a significant role in the art market. They viewed art as a financial asset and invested in it for its potential to appreciate in value.
One of the most prominent examples is Peggy Guggenheim, who built an unparalleled collection of works by famous 20th-century artists, housed in her former home, Palazzo Venier dei Leoni on the Grand Canal in Venice.
She was known for buying a painting a day at the outset of World War II, building a collection with works by Chagall, Picasso, Ernst, Miró, Magritte, Man Ray and Dalí.
Another prominent private collector was J. Paul Getty, an American oil baron from the Midwest who took advantage of falling art prices before World War II and collected European paintings. When he died, he left most of his fortune to the J. Paul Getty Museum Trust, which operates the J. Paul Getty Museum in Los Angeles with assets, including art, of about $10 billion.
***David Rockefeller was another prominent private collector who followed in his parents' footsteps when it came to art. Over the course of his lifetime, he collected about 15,000 works of art and donated paintings by Picasso, Cézanne, Gauguin and Matisse to the Museum of Modern Art in New York. In 2007, he sold a painting by Mark Rothko at Sotheby's in New York for nearly $73 million. He had bought it in 1959 for $10,000.
Private collectors continue to play an important role in the art market today. Some use their collections as a way to diversify their portfolios and potentially earn high returns on investment.
5. The Postwar Boom in Contemporary Art
The postwar period saw a boom in contemporary art, particularly in the United States. Artists such as Jackson Pollock, Mark Rothko, and Willem de Kooning were at the forefront of the movement known as Abstract Expressionism, which dominated the art world in the 1950s.
The emergence of Pop Art in the 1960s, led by artists such as Andy Warhol and Roy Lichtenstein, also sparked a new wave of interest in contemporary art.
This surge of interest in contemporary art led to a corresponding rise in prices. Collectors and investors began to view art as a viable alternative investment with the potential for high returns. Auction houses such as Sotheby's and Christie's capitalized on this trend by holding high-profile contemporary art auctions that attracted international attention. One of the most significant moments happened in October 1973.
Robert C. Scull, a New Yorker and avid collector of abstract expressionism and pop art, auctioned off 50 of his best paintings. That auction was the catalyst for a new era in the art world, as artworks sold for many times their original purchase prices. A painting by Cy Twombly sold for $40,000, more than 50 times the $750 Scull had originally paid. A Jasper Johns painting, Double White Map, went for $240,000 after originally being purchased for $10,200.
The auction generated total proceeds of more than $2 million ($12 million in today's dollars) and set new records for living artists. The auction showed the world what historical collectors already knew: there was money to be made in contemporary art, and investing in art was a credible option for many.
Art became a popular investment option for the wealthy, and collectors like François-Henri Pinault, Eli Broad, and Charles Saatchi amassed huge collections of contemporary art. The value of contemporary art skyrocketed. Works by artists such as Rothko and Warhol selling for tens of millions of dollars at auction.
Marilyn Monroe Painting by Andy Warhol
This trend has continued to the present day, and contemporary art remains a popular investment opportunity for collectors and investors alike.
Another great development is fractional art investing. This allow investors to purchase art based on a dollar amount of their choosing, rather than the price of an entire painting.
6. The Globalization of the Art Market in the 21st century
The 21st century, has seen the globalization of the art market, with new markets emerging in Asia and the Middle East, and the growing influence of wealthy collectors from these regions. This has led to a shift in the balance of power in the art world, with auction houses and galleries increasingly catering to these new buyers.
The rapid growth of the Chinese economy has led to a surge in demand for art in China, with collectors and investors driving up prices for works by Chinese artists. In recent years, China has become the second largest market for art sales after the United States.
Countries in the Middle East, such as Qatar and the United Arab Emirates, have also invested heavily in cultural institutions and have become major players in the global art market.
The globalization of the art market has also led to a diversification of the types of art that are bought and sold. While modern and contemporary art from the West continues to fetch high prices, interest in non-Western art, including African, Latin American and Middle Eastern art, has increased.
The New York Times: Fahrelnissa Zeid’s "Feast in the Desert.’’
Fractional ownership is not, by and large, a new concept - it is the premise on which mutual funds, ETFs and REITs are all based.
A big player in this space is Masterworks, a company that allows people of all income levels to "invest" in "shares" of artwork that the company has acquired and that they would not otherwise be able to buy outright.
This practice allows "normal" investors to take partial ownership of a painting - and collect their proportional share of the profits once Masterworks sells the painting.
7. The Increasing Use of Technology
The increasing use of technology has greatly changed the art market in recent years, creating new opportunities for buying, selling, and valuing art. One of the most significant developments has been the use of blockchain technology, which provides a secure and transparent way to track the ownership and provenance of artworks.
Blockchain technology has been used to create digital certificates of authenticity that can be attached to an artwork to verify its ownership and authenticity. This has the potential to eliminate the problem of forgeries and fraud in the art market and make it easier for collectors to buy and sell art with confidence.
The use of technology has also created new opportunities for valuing art. Data analytics and artificial intelligence are being used to analyze sales data and predict trends in the market.
This has made it easier for collectors and investors to make informed decisions about buying and selling art, and has led to greater transparency in the market.
Overall, the increasing use of technology in the art market is changing the way art is bought, sold and valued. It has the potential to make the market more efficient, transparent and accessible, while also creating new challenges and opportunities for collectors, artists and investors.
Final Thoughts
In 2021, the total value of transactions in the global art market was just over $65 billion. In 2022, new records were set for the most expensive Post-War & Contemporary work of art at auction - Warhol's Shot Sage Blue Marilyn for $195 million - and the most expensive sale to a single owner - over $1.6 billion for the Paul G. Allen Collection. The market continues to thrive.
Before we conclude, let us return to the Medici. The last Medici ruler died in 1737 without a male heir, but to this day over a million people visit the Palazzo Vecchio each year to view their collection.
Overall, art collecting has a long and storied history. Many wealthy individuals and institutions use it as a way to demonstrate their taste and contribute to the cultural landscape.
Although the financial returns on art investments can be substantial, it is important to note that art collecting is also a deeply personal and subjective pursuit, driven by a love of beauty and creativity rather than by one's wallet
Leave a comment